Regulatory reform efforts and market trends indicate clearing is set to become an even more integral part of the structure of financial markets.

In Part 1 of this Special Update, we look at the regulatory landscape as it pertains to clearing and share legal analyses from some of the best law firms in the financial services industry. We also bring you a progress report on Dodd-Frank rulemakings.

Part 2 of this Special Update, scheduled to hit your inbox tomorrow, will review market trends related to clearing. We will also bring you an exclusive Q-and-A with William A. Coppel, managing director and chief client growth officer for First Clearing Correspondent Services.

From SIFMA

Derivatives play an important role in capital markets and the broader economy. Companies in every state use derivatives to protect against many types of risk that are inherent in their businesses. In the wake of the financial crisis of 2008, Congress sought to strengthen regulatory oversight of derivatives through the Dodd-Frank Act, due to their important role in the markets.

While SIFMA believes that Dodd-Frank took several important steps with respect to improving transparency in derivatives markets, in some respects the Act goes too far and could limit the availability and/or increase the cost of these valuable risk-management tools for American business, agriculture, and state and local governments. The Act establishes a broad, new regulatory regime that requires numerous rulemakings that are likely to have profound effects on the market, including provisions governing swap dealers, major swap participants and end-users such as manufacturers, financial institutions, and agricultural concerns.

SIFMA is working with the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and other regulators that are undertaking rulemakings to implement the derivatives-related provisions of the Act. SIFMA remains committed to educating legislators, regulators and others about the types and uses of derivatives, as well as the integral role they play in our economy.

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First Clearing, LLC is a registered broker-dealer and non-bank affiliate of Wells Fargo & Company. 1112-04385

Dodd-Frank foreign-exchange exemption praised by industryThe U.S Treasury's decision to exempt foreign-exchange forwards and swaps from the Dodd-Frank Act's clearing and exchange trading rules has been applauded by the investment community. Regulators concluded that Dodd-Frank's objectives were fully implemented by procedures already being followed by the industry. The Trade News (U.K.)
(11/19)

EU's OTC clearing mandates will take time, U.K. official saysA Bank of England official says it is unlikely that the first clearing mandates for over-the-counter derivatives will be in effect in Europe before August, given necessary regulatory and legislative steps. "At that point, it is possible there will be [central counterparties] that have been authorized and that [the European Securities and Markets Authority] will pretty quickly, or around the same time, confirm that the central-clearing mandate applies for some or all of the products those CCPs clear," said Edwin Schooling Latter, head of payments and infrastructure at the U.K. central bank. Risk.net (subscription required)
(11/6)

BoE official warns CCPs against risk and margin secrecyCentral counterparties' refusal to detail risk and margin models on the grounds of proprietary information cannot be justified, Edwin Schooling Latter, head of payments and infrastructure at the Bank of England, said at the OTC Derivatives Clearing Summit Europe. Citing the entry of small derivatives users, Schooling Latter said, "Not every client can be on the risk committee. Not every client can attend board discussions on segregation. So it is very important those that can't are able to benefit from full and appropriate disclosure by the CCP on how it is managing its risks." Risk.net (subscription required)
(11/7)

BoE official questions estimate of needed collateralAn industry report that estimated that up to $30 trillion will need to be set aside for collateral because of central clearing of over-the-counter derivatives is overblown, says Edwin Schooling Latter of the Bank of England. "It's important to remember that there is a lot of high-quality collateral available and the amount of it is not numerically decreasing, but actually increasing," Schooling Latter said. Risk.net (subscription required)
(11/6)

First Clearing, LLC is a registered broker-dealer and non-bank affiliate of Wells Fargo & Company. This material is for broker-dealer and financial professional use only. First Clearing does not provide services to the general public. 1112-04385

White papers and legal analyses

The Clearing DebateBehind the G-20 commitments on the financial markets is the belief that some of the key dangers arising from the collapse of Lehman Brothers could be laid at the door of the bilateral, over-the-counter market in derivatives. In short, it is believed that the lack of centralized clearing for the considerable number of OTC derivatives contributed to the instability of the time. Concerns about the OTC derivatives market arose because of the fragmented nature of trading in this market, the fact that it was decentralized which made positions difficult to assess and that those bilateral exposures were often inadequately collateralized. In addition, the bilateral nature of the market led to the possibility of default cascades. Download the white paper from Thomson Reuters. Thomson Reuters
(4/1)

Dodd-Frank Rulemaking Progress Report -- December 2012As of Dec. 3, 2012, a total of 237 Dodd-Frank rulemaking requirement deadlines have passed. Of these, 144 (61%) have been missed and 93 (39%) have been met with finalized rules. In addition, 133 (33.4%) of the 398 total required rulemakings have been finalized, while 132 (33.2%) rulemaking requirements have not yet been proposed. Although no rulemaking requirements were met in November, there was a flurry of regulatory activity in the form of no-action relief and other guidance, particularly by the CFTC with regards to Title VII implementation. Download the full progress report from Davis Polk & Wardwell LLP.

IOSCO Secretary-General David Wright to speak at SIFMA/GFMA LEI Seminar -- Dec. 11 -- NYCSIFMA and GFMA are partnering to present the "Implementing a Global LEI Framework -- Ready. Set. Go." Join IOSCO Secretary-General David Wright, U.S. Treasury representatives, and financial services leaders as they address preparation for the December LEI deadline in the U.S. and the future of the global LEI standard. Don't miss your chance to learn more about the impact these regulations and processes will have on your firms starting this month! Register today.

EARLY BIRD SPECIAL: SIFMA 40th Annual Operations Conference & Exhibit 2013 at 2012 prices!SIFMA's 40th Annual Operations Conference + Exhibit in Boca Raton, Fla., from April 28 to May 1, 2013 will bring together senior professionals from all corners of the marketplace at the premier event for financial services operations. Take advantage of early-bird pricing so you can engage expert thought leaders to examine the most critical operational, risk management and regulatory issues affecting your firm. In addition, you will gain unique insights and actionable solutions from senior industry professionals, regulators and service providers.

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